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Suspect in Fraud at K1 Group Has Died

A hedge fund investor wanted by German prosecutors in connection with a bank fraud investigation has died in Majorca, Spain, apparently in a suicide.

The suspect, Dieter Frerichs, 72, died of a gunshot wound on Saturday after police officers went to his home in Palma to serve a warrant for extradition to Germany, the Spanish police said Monday.

Mr. Frerichs was the director of two hedge funds, K1 Invest and K1 Global, controlled by Helmut Kiener, the founder of the K1 Group. Mr. Kiener has been in custody in Würzburg, Germany, since October on suspicion of operating a pyramid scheme, defrauding thousands of private investors and banks including JPMorgan Chase, Barclays and BNP Paribas of more than 300 million euros, or $375 million.

The F.B.I. is also investigating the group; so are authorities in the British Virgin Islands, Liechtenstein and Switzerland.

The two highly leveraged funds had a combined 421 million euros ($529 million) of liabilities when the accounting firm Grant Thornton was retained in November to liquidate them. The authorities say the prospects for recovering most of the money are poor.

According to a police spokeswoman, three officers went to Mr. Frerichs’s home on the island at 11:30 a.m. on Saturday and found him sunbathing nearby on rocks overlooking the sea. When the officers identified themselves, they said, Mr. Frerichs took a gun from a bag that was lying beside him and leapt into the water.

Mr. Frerichs fired two shots, the spokeswoman said. The first, presumably to test the gun, the authorities said, was fired in the air; with the second, he shot himself in the head. Mr. Frerichs was picked up by a rescue boat and taken to the Son Dureta hospital in Palma. He died not long after arrival.

The case has sent shock waves through Spain, where Mr. Frerichs’s stepdaughter, Fiona Ferrer Leoni, initially told the media that the police had shot Mr. Frerichs. She also questioned the police account of him sunbathing with a gun.

Ms. Ferrer, a prominent television personality and model, is married to Jaime Polanco, a Spanish tycoon whose family controls Promotora de Informaciónes, or Prisa, the media group, whose assets include the newspaper El País.

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She also told the Spanish news media that Mr. Frerichs had been sought only for his relationship to K1 Group executives and that he was innocent of any fraud.

Ms. Ferrer could not be reached for comment on Monday.

The police spokeswoman, who cannot be identified because of department policy, denied that officers had fired at Mr. Frerichs. She said his weapon had been retrieved and would be used, along with an autopsy, to determine the exact circumstances of his death.

“It is not normal to be sunbathing with a bag that has a gun,” the spokeswoman said. “But that’s what he did.”

Dietrich Güder, the state prosecutor in Würzburg, declined to comment beyond confirming that the Spanish police had informed him of the events.

Lutz Libbertz, a lawyer in Munich for Mr. Kiener, argued in a November court filing that Mr. Kiener could “at the most be accused of making bad investment decisions, but not of actions constituting breach of trust.” Mr. Libbertz declined to comment on Monday, saying through an associate that “he had nothing to add to what’s already been said.”

Mr. Kiener, a former psychologist, was accused of luring investors with his claims of consistent and stable returns.

Mr. Kiener promoted the power of his “K1 Fund Allocation System,” and is accused of taking advantage of lax lending oversight by banks during the credit boom. He claimed his investments had returned more than 700 percent from 1996 and the end of 2008.

The case has been an embarrassment for Germany, as BaFin, the market regulator, had several times sought to stop Mr. Kiener’s activities because of significant legal questions but had its enforcement overturned on appeal.

Jack Ewing contributed reporting.

A version of this article appears in print on July 6, 2010, on Page B4 of the New York edition with the headline: Suspect In Fraud At K1 Group Has Died. Order Reprints|Today's Paper|Subscribe